Common Equity Offering

December 2009

Better ideas. Better banking.

2

Disclosure Statement

The Company proposes to issue the common shares pursuant to a prospectus supplement that will be filed as part of an existing shelf registration statement previously filed with

the Securities and Exchange Commission on Form S-3. The offering may be made only by means of a prospectus and related prospectus supplement. Prospective investors should

read the prospectus in that registration statement, the preliminary prospectus supplement and the other documents incorporated by reference therein that the Company has filed

with the SEC for more complete information about the Company and the offering. Investors may obtain these documents without charge by visiting EDGAR on the SEC website

at www.sec.gov. Alternatively, copies of the preliminary prospectus supplement and the prospectus relating to the offering may be obtained from Sandler O'Neill + Partners, L.P.,

919 Third Avenue, 6th Floor, New York, NY 10022, 1-866-805-4128 and D.A. Davidson & Co., 8 Third Street North, Great Falls, MT 59401, 1-800-332-5915. The documents

can also be obtained for free from the website at www.sandleroneill.com/prospectus/BANR-Prospectus.pdf.

The Private Securities Litigation Report Act of 1995 provides a "safe harbor" for certain forward-looking statements.  This presentation contains forward-looking statements with

respect to the Corporation's financial condition, results of operations, plans, objectives, future performance or business.  These forward-looking statements are subject to certain

risks and uncertainties, including those identified below, which could cause future results to differ materially from historical results or those anticipated.

The words "believe," "expect," "anticipate," "intend," "estimate," "goals,” "would," "could," "should" and other expressions which indicate future events and trends identify

forward-looking statements.  We caution readers not to place undue reliance on these forward-looking statements, which is based only on information known to the Corporation,

speak only as of their dates, and if no date is provided, then such statements speak only as of today.  There are a number of important factors that could cause future results to

differ materially from historical results or those anticipated, including, but not limited to: the credit risks of lending activities, including changes in the level and trend of loan

delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real

estate markets; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between

short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and

other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to sell loans in the secondary market; results of

examinations of us by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and of our bank subsidiaries by the Federal Deposit Insurance

Corporation (the “FDIC”), the Washington State Department of Financial Institutions, Division of Banks (the “Washington DFI”) or other regulatory authorities, including the

possibility that any such regulatory authority may, among other things, institute a formal or informal enforcement action against us or any of the Banks which could require us to

increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could

adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the

interpretation of regulatory capital or other rules; our ability to attract and retain deposits; further increases in premiums for deposit insurance; our ability to control operating costs

and expenses; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;

staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; the failure or security

breach of computer systems on which we depend; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and

judgments; our ability to implement our growth strategy; our ability to successfully integrate into our operations any assets, liabilities, customers, systems, and management

personnel we have acquired or may in the future acquire and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges

related thereto; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to

address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common and preferred stock and interest or principal

payments on our junior subordinated debentures; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in

accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance

and interpretation on accounting issues and details of the implementation of new accounting methods; other economic, competitive, governmental, regulatory, and technological

factors affecting our operations, pricing, products and services and the other risks described elsewhere in the preliminary prospectus supplement, the accompanying prospectus and

the documents incorporated therein by reference; and future legislative changes in the United States Department of Treasury (“Treasury”) Troubled Asset Relief Program

(“TARP”) Capital Purchase Program.

The Corporation does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date on which the forward-

looking statement is made.

3

Use of Non-GAAP Financial Measures

Tangible equity, tangible common equity and tangible common equity to tangible assets are non-

GAAP financial measures. We calculate tangible equity by excluding the balance of goodwill and other

intangible

assets

from

shareholders’

equity.

We

calculate

tangible

common

equity

by

excluding

preferred equity from tangible equity. We calculate tangible assets by excluding the balance of

goodwill and other intangible assets from total assets.  We believe that this is consistent with the

treatment by our bank regulatory agencies, which exclude goodwill and other intangible assets from

the calculation of risk-based capital ratios. Accordingly, management believes that these non-GAAP

financial measures provide information to investors that is useful in understanding the basis of our risk-

based

capital

ratios.

In

addition,

by

excluding

preferred

equity

(the

level

of

which

may

vary

from

company to company), it allows investors to more easily compare our capital adequacy to other

companies in the industry who also use this measure. We calculate normalized pre-tax, pre-provision

earnings by adding provision for loan losses to income before income taxes.  Management believes

normalized pre-tax, pre-provision earnings is useful in assessing the Company's core performance

and trends, particularly during times of economic stress.

These non-GAAP financial measures are supplemental and are not a substitute for any analysis based

on GAAP financial measures. Because not all companies use the same calculations of tangible

common equity, tangible assets and normalized pre-tax, pre-provision earnings, these presentations

may not be comparable to other similarly titled measures as calculated by other companies.

Reconciliations of the non-GAAP financial measures are provided on page 22 and in Appendix A of

this presentation.

4

Transaction Overview

Issuer:

Banner Corporation

Ticker / Exchange:

BANR / NASDAQ GSM

Type of Offering:

Follow-on Public Offering

Type of Security:

Common Stock

Transaction Size:

$75 million

Over-Allotment Option:

15%

Use of Proceeds:

Provide capital to Banner Bank to

support growth and for general

working capital purposes

Book-Running Manager:

Sandler O'Neill + Partners, L.P.

Co-Manager:

D.A. Davidson & Co.

5

Presenting Today

D. Michael

Jones,

President

and

Chief

Executive

Officer

Mr. Jones joined Banner Corporation in 2002 as President and Chief Executive Officer. Mr. Jones is a

Certified Public Accountant (Inactive) and served as President and Chief Executive Officer from 1996 to

2001 for Source Capital Corporation, a lending company in Spokane, Washington. From 1987 to 1995, Mr.

Jones served as President of West One Bancorp, a large regional banking franchise based in Boise, Idaho.

He is also a director of Banner Corporation and Banner Bank.

Lloyd

W.

Baker,

Executive

Vice

President

&

Chief

Financial

Officer

Mr.

Baker

joined

Banner

Bank

as

Asset

Liability

Manager

in

1995.

He

was

promoted

to

Senior

Vice

President and made a member of the Executive Committee in 1998 and was named to his current position

in

August

of

2000.

Prior

to

joining

Banner,

he

served

in

several

asset

liability

and

portfolio

management

positions with Far West Federal Bank in Portland, Oregon, and Fidelity Mutual Savings Bank in Spokane,

Washington.

He

also

served

as

Chief

Financial

Officer

of

Western

Heritage

Federal

Savings

&

Loan

in

Pendleton, Oregon, and Community Savings & Loan Association in Wenatchee, Washington.

Richard

B.

Barton,

Executive

Vice

President

&

Chief

Lending/Credit

Officer

Mr. Barton joined Banner Bank in 2002 as Chief Credit Officer and was named to his current position in

2008.  Previously, Mr. Barton worked in a variety of commercial lending and credit risk management

capacities

for

Seafirst

Bank/Bank

of

America

for

30

years,

beginning

in

1972.

Key

jobs

included

commercial lending, commercial credit administration, special credits collection work, including six years

involving the Seafirst Penn Square/Energy loan portfolio, commercial/residential real estate credit

administration for the Pacific Northwest, and homebuilder real estate credit administration for the West

Coast.

6

Offering Objectives

Strengthens our capital position

Pro forma TCE/TA of 7.2%¹

Pro forma Tier 1 leverage ratio of 11.0%¹

Pro forma Total risk based capital ratio of 14.3%¹

Allows for continued execution of our problem loan resolution

process

Better positions us to capture business opportunities resulting from

market dislocation

¹

Based on September 30, 2009 ratios; assumes gross proceeds of $75mm, 5.75% underwriting discount and $300,000 in other expenses

7

Investment Summary

Strategically-located Pacific Northwest branch network

Solid and growing deposit base

Loan portfolio with diversification in geographic and loan type

Diversified economic drivers across markets

Thorough and conservative approach to credit risk management has

led to flattening credit quality trends

Management team with extensive operating and credit cycle

experience in Pacific Northwest markets

Solid core operating results

Attractive current valuation

8

Company Overview

Founded in 1890

89 branches and 8 loan production

offices focused on complementary

mix of urban and middle markets:

Seattle

Spokane

Portland

Boise

Columbia Basin

Focused on serving small-to-

midsize businesses and individuals

Financial Highlights:

Total Assets:

$4.8 billion

Total Loans:

$3.9 billion

Total Deposits:

$3.9 billion

Total

Shareholders’

Equity¹:

$407

million

Note: Financial data as of September 30, 2009

¹

Includes

$124

million

of

preferred

stock

and

warrants

issued

to

the

U.S.

Treasury

under

the

Capital

Purchase

Program

(TARP)

Branch

Loan Center

Islanders Bank

Seattle

Portland

Boise

Spokane

9

Loan Portfolio Composition

Geographic Breakdown

Loan Category Breakdown

Diversified lending by both collateral type and geography

Minimal out-of-market lending

Banner’s strategic plan is aimed at changing the loan category mix by increasing

commercial and consumer lending activity

$677

$226

$303

$153

$369

$678

$482

$585

$424

$0

$100

$200

$300

$400

$500

$600

$700

$800

Portland

$651

17%

Columbia Basin

$1,018

26%

Other

$43

1%

Puget Sound

$1,421

37%

Spokane

$513

13%

Boise

$251

6%

Note: Data as of September 30, 2009; dollars in millions

10

Loan and Credit Quality Comparison

Proactive credit management and problem recognition

Commercial real estate portfolios are being proactively managed including loan by loan stress testing to

identify potential problem assets

90% of past due loans are on nonaccrual

Credit issues remain concentrated in 1-4 family residential construction and land portfolios

68% ($4.2 million) of losses in the 1-4 family real estate category were mark-to-market charges for

loans

made

in

conjunction

with

the

“Great

Northwest

Home

Rush”

program

that

focused

on

facilitating the sale of completed homes financed for builders

Credit losses in agriculture were related to a particular issue with a single borrower

(Dollars in Thousands)

Balances

Classified

NPL

YTD NCOs

Past Due

Loan Category

($)

(%)

($)

(%)

($)

(%)

($)

(%)

($)

(%)

CRE: Owner occupied

$481,698

12.4

$22,334

4.6

$3,069

0.6

-

           

0.0

$4,467

0.9

CRE: Investment properties

585,206

    

15.0

18,211

     

3.1

4,248

       

0.7

-

           

0.0

7,143

       

1.2

Multifamily real estate

152,832

    

3.9

263

          

0.2

-

           

0.0

-

           

0.0

452

          

0.3

Commercial construction

83,937

     

2.2

1,840

       

2.2

-

           

0.0

113

          

0.1

1,565

       

1.9

Multifamily construction

62,614

     

1.6

-

           

0.0

-

           

0.0

-

           

0.0

-

           

0.0

1-4 family construction

277,419

    

7.1

104,692

    

37.7

68,565

     

24.7

16,007

     

5.8

70,501

     

25.4

Residential land and development

322,030

    

8.3

166,512

    

51.7

109,668

    

34.1

34,165

     

10.6

95,799

     

29.7

Commercial land and development

47,182

     

1.2

20,793

     

44.1

17,138

     

36.3

2,212

       

4.7

17,138

     

36.3

Commercial business

678,187

    

17.4

55,205

     

8.1

15,070

     

2.2

8,946

       

1.3

18,404

     

2.7

Agricultural business, including secured by farmland

225,603

    

5.8

15,403

     

6.8

6,624

       

2.9

3,159

       

1.4

8,460

       

3.7

One- to four-family real estate

676,928

    

17.4

30,257

     

4.5

18,797

     

2.8

6,182

       

0.9

20,370

     

3.0

Consumer

302,558

    

7.8

390

          

0.1

110

          

0.0

1,230

       

0.4

980

          

0.3

Total

$3,896,194

100.0

$435,900

11.2

$243,289

6.2

$72,014

1.8

$245,279

6.3

Note: Data as of September 30, 2009; Percentages in table are expressed as a percentage of the total loan portfolio balances.

11

Loan Portfolio: Construction

Commercial

and

Multifamily

Const.

-

$147mm

Residential

Construction

-

$277mm

The commercial construction portfolio is less than 4% of the total loan portfolio and has no non-

performing loans

There are no past due, classified or non-performing multifamily construction loans

The

residential

construction

portfolio

is

largely

in

the

Seattle

and

Portland

markets

with

significant

borrower and submarket diversification

Residential construction balances declined 58% from their peak at June 30, 2007

The residential construction portfolio represents approximately 28% of total non-performing loans

as of September 30, 2009

Idaho

$15

5%

Washington

$133

48%

Oregon

$130

47%

Note: Data as of September 30, 2009; dollars in millions

$31

$13

$6

$7

$63

$23

$4

$0

$10

$20

$30

$40

$50

$60

$70

12

Loan Portfolio: Land and Land Development

Breakdown by Type

Geographic Breakdown

Idaho

$46

12%

Washington

$180

49%

Oregon

$143

39%

Note: Data as of September 30, 2009; dollars in millions

Total land and land development portfolio of $369 million at September 30, 2009

Land

and

land

development

balances

have

decreased

over

23%

since

September

30,

2008

Concentration has fallen from 12% to 10% of total loans

As of September 30, 2009, non-performing loans in this segment were $127 million

(approximately 52% of

total non-performing loans)

$51

$21

$17

$182

$89

$9

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

13

Loan

Portfolio:

CRE

–

Owner

Occupied

Breakdown by Type

Geographic Breakdown

Idaho

$42

9%

Washington

$380

79%

Oregon

$60

12%

Note: Data as of September 30, 2009; dollars in millions

Total CRE-owner occupied portfolio of $482 million at September 30, 2009

Average portfolio loan size of $536 thousand

As of September 30, 2009, non-performing loans in this segment were $3 million, or

approximately 1% of total non-performing loans

Delinquency rate of 0.9% as of September 30, 2009

$45

$124

$38

$92

$82

$84

$17

$0

$20

$40

$60

$80

$100

$120

$140

14

Loan

Portfolio:

CRE

–

Income

Property

and

Multifamily

Loans

Breakdown by Type

Geographic Breakdown

Note: Data as of September 30, 2009; dollars in millions

Total CRE income property and multifamily portfolio of $738 million at September 30, 2009

Average portfolio loan size of $682 thousand

At

September

30,

2009,

non-performing

loans

were

$4.2

million,

or

approximately

2%

of

total

non-

performing loans

Delinquency rate of 1.0% as of September 30, 2009

$81

$45

$127

$53

$43

$153

$181

$55

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

Idaho

$52

7%

Washington

$566

77%

Oregon

$105

14%

Other

$14

2%

15

Credit Philosophy Is Yielding Results

Banner’s goal is to identify and resolve problems early instead of waiting for problems to mature

before taking action

No single template that fits all problem credits

The

actions

below

are

a

representative

cross

sample

of

Banner’s

credit

risk

management

in

action

Actions:

Results:

1)

“Great

NW

Home

Rush”

program

to

assist

builders in

selling completed homes. Banner provided special

financing, advertizing and required builder and realtor

participation

2)

Stress testing of CRE portfolio loan by loan

3)

Asset Disposition Committee formed to consider

alternatives for RE loans and OREO

4)

On site C&I/Agriculture portfolio review by executive

management/senior credit staff

5)

Annual loan by loan risk rating certification

6)

Special issue research to determine portfolio impact

(example: project to determine credits vulnerable to

spiked energy costs)

7)

Rolling four quarter forecast of portfolio metrics

8)

Adequate staffing for credit risk management

1)

Since

March

2009,

375

of

612

homes

sold,

reducing

loan totals by over $120 million

2)

Identified

“credits

to

watch”

while

CRE

credit

still

performing

3)

With involvement of RE industry members, higher

recoveries anticipated

4)

Identify emerging credit issues, portfolio management

weaknesses and training needs

5)

Ensure accuracy of portfolio risk ratings

6)

Identification

of

“hot

spots”

in

the

portfolio

and

changes

needed in new loan underwriting

7)

Assess trends in portfolio quality and ALLL adequacy

8)

In the past 12 months staff adds have been made in

Special Assets, Credit Examination, and Credit

Administration

16

Charge-offs and Reserves

Charge offs have been concentrated in the residential construction and land portfolio with the

majority of the losses coming from the land portion of the portfolio

90%

of

non-performing

loans

have

had

detailed

individual

SFAS

114

specific

impairment

analysis

at September 30, 2009

Non performing loans have been reduced by $38 million of charge-offs and have an additional $17

million of specific reserves

Renegotiated loans were underwritten using current property valuations

$9.0 million (9.4% of total allowance) of unallocated reserves

(Dollars in Thousands)

Gross

NPAs /

Renegotiated

Quarterly

Loan Loss

Reserves /

Quarter

Loans

NPLs

OREO

Other¹

NPAs

Assets

Loans

NCOs

Reserves

Loans

2008Q1

3,839,993

54,435

7,572

7

62,014

1.36%

2,026

1,881

50,446

1.31%

2008Q2

3,973,299

89,918

11,390

7

101,315

2.19%

7,771

6,876

58,570

1.47%

2008Q3

3,999,179

119,366

10,147

6

129,519

2.79%

15,514

7,724

58,846

1.47%

2008Q4

3,961,408

187,345

21,782

104

209,231

4.56%

23,635

16,649

75,197

1.90%

2009Q1

3,915,547

224,097

38,951

318

263,366

5.84%

27,550

17,473

79,724

2.04%

2009Q2

3,913,081

225,069

56,967

230

282,266

6.23%

55,031

34,030

90,694

2.32%

2009Q3

3,896,194

243,288

53,576

1,425

298,289

6.23%

55,161

20,511

95,183

2.44%

¹

Represents securities on nonaccrual at fair value and other repossessed assets held for sale, net

17

Illustrative SCAP Analysis

¹

Loss rates based on midpoints of rate ranges in Table 1 of FRB's May 7, 2009 SCAP results

Balance as of 12/31/08

Loss Severity

¹

(%)

Total Loss ($000s)

Loan Type

($000s)

(%)

Baseline

More Adverse

Baseline

More Adverse

First Lien Mortgages

$612,692

15.5%

2.00%

3.50%

$12,254

$21,444

Closed-end Junior Lien Mortgages

50,669

1.3%

19.00%

23.50%

9,627

11,907

HELOCs

153,327

3.9%

7.00%

9.50%

10,733

14,566

C&I

623,455

15.7%

3.50%

6.50%

21,821

40,525

Agriculture Product

148,290

3.7%

3.50%

6.50%

5,190

9,639

Farm Real Estate

55,764

1.4%

6.25%

10.50%

3,485

5,855

Construction & Development

1,047,055

26.4%

10.00%

16.50%

104,706

172,764

Multi-Family

151,815

3.8%

5.00%

10.50%

7,591

15,941

CRE (Non-Farm, Non-Resi)

1,015,717

25.6%

4.50%

8.00%

45,707

81,257

Credit Cards

22,605

0.6%

14.50%

19.00%

3,278

4,295

Consumer

68,752

1.7%

5.00%

10.00%

3,438

6,875

Other Loans

18,372

0.5%

3.00%

7.00%

551

1,286

Loan

Portfolio

-

12/31/08

$3,961,408

5.59%

9.57%

$221,275

$379,249

Roll Forward to 9/30/09

Net Charge-offs Q1 2009

17,473

17,473

Net Charge-offs Q2 2009

34,030

34,030

Net Charge-offs Q3 2009

20,511

20,511

September 30, 2009 Exposure

$149,261

$307,235

18

Pro Forma Capital Position

¹

Assumes gross proceeds of $75mm with underwriters' discount of 5.75% and expenses of $300,000

²

Assumes proceeds risk-weighted at 20%

³

Assumes quarterly intangible amortization of $647 thousand, quarterly pre-tax, pre-provision earnings of $10 million and $4.5 million of equity

issued quarterly as part of the DRIP program; earnings will be applied to assets, and capital raised will be applied to liabilities

As of September 30, 2009

Projected September 30, 2011³

Actual

Pro Forma¹

Baseline¹

More Adverse¹

SCAP Projected Loan Losses (Less YTD 2009 NCO's)

--

--

$149,261

$307,235

Common Equity / Assets

6.05%

7.41%

7.75%

4.65%

Equity / Assets

8.49%

9.82%

10.19%

7.17%

Tangible Common Equity / Tangible Assets

5.82%

7.19%

7.59%

4.48%

Tangible Equity / Tangible Assets

8.27%

9.60%

10.12%

7.10%

Well-

Capitalized

Tier 1 Leverage Ratio

5.00%

9.66%

11.02%

11.58%

8.47%

Tier 1 Risk-Based Ratio²

6.00%

11.27%

13.02%

13.67%

10.06%

Total Risk-Based Ratio²

10.00%

12.54%

14.28%

14.87%

11.26%

19

Geographic Deposit Composition and Market Share

Note: Data as of September 30, 2009; dollars in millions

Source: Company filings and SNL Financial

Boise / So Idaho

$264

7%

Greater Portland

$297

8%

Puget Sound

$1,227

32%

Admin

$250

6%

Columbia Basin

$1,353

35%

Greater

Spokane

$470

12%

Deposit growth opportunity in key Northwest metropolitan markets

complemented by our historically strong market position in the Columbia

Basin

June 30, 2009

MSA

Rank

Branches

Deposits

($000)

Market

Share

(%)

Seattle-Tacoma-Bellevue, WA

14

17

686,653

1.0

Walla Walla, WA

1

6

567,136

46.7

Spokane, WA

6

16

440,592

6.0

Yakima, WA

3

6

312,297

13.3

Pendleton-Hermiston, OR

1

6

277,258

33.2

Portland-Vancouver-Beaverton, OR-WA

15

9

263,281

0.8

Bellingham, WA

5

7

232,748

7.3

Kennewick-Pasco-Richland, WA

4

4

179,497

8.2

Lewiston, ID-WA

2

3

156,492

20.5

Wenatchee-East Wenatchee, WA

4

2

143,374

7.6

Boise City-Nampa, ID

16

5

120,009

1.6

La Grande, OR

4

1

47,628

14.4

Oak Harbor, WA

8

1

46,451

4.7

Twin Falls, ID

9

1

38,122

2.8

Mount Vernon-Anacortes, WA

14

1

34,601

1.6

Counties not in an MSA

Baker, Oregon

3

1

36,428

17.3

San Juan, Washington

1

3

176,475

42.6

Columbia, Washington

1

1

26,590

31.2

20

Deposit Franchise Highlights

Deposit Composition

2.16%

2.36%

2.54%

2.96%

3.88%

3.55%

2.46%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

2005

2006

2007

2008

Q1 2009

Q2 2009

Q3 2009

Historical Deposit Cost

Retail deposits have increased $361 million (over 11%) year-to-date

Significant opportunity exists to further lower our cost of deposits as higher cost

deposits re-price in the near term

Regular savings

$522

14%

CDs <$100k

$956

25%

CDs >$100k

$1,053

26%

Non-int.-bearing

$547

14%

Int.-bearing

checking

$330

9%

Money market

$454

12%

Note: Data as of September 30, 2009; dollars in millions

Deposit Sources

CD Maturity Schedule

After 3 years

$39

2%

Within 1 year

$1,563

78%

Between 1 and 3

years

$407

20%

$3,532

$3,320

$3,158

$3,171

$3,225

$2,403

$2,061

$144

$183

$232

$339

$338

$257

$171

$186

$248

$238

$269

$57

$134

$92

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

2005

2006

2007

2008

Q1 2009

Q2 2009

Q3 2009

Retail Deposits

Public Funds

Brokered Funds

21

Core Operating Results

Actively expanding core deposit account base

Diversified lending platform including commercial, agriculture, consumer

and real estate

Potential net interest margin opportunity as higher-cost deposits re-price

Increasing mortgage banking fee activity

Demonstrated expense control

(Dollars in Thousands)

Q4 2008

Q1 2009

Q2 2009

Q3 2009

Income (Loss) Before Provision For Income Taxes

($83,473)

($16,186)

($26,989)

($11,824)

ADD: Provision For Loan Losses

33,000

22,000

45,000

25,000

LESS: Net Change In Valuation Of Financial Instruments Carried At Fair Value

13,740

(3,253)

11,049

4,633

ADD: Goodwill Write-Off

71,121

0

0

0

Normalized Pre-Tax, Pre-Provision Earnings

$6,908

$9,067

$6,962

$8,543

22

Investment Portfolio

As

of

September

30,

2009,

the

securities

portfolio

had

a

carrying

value

of

$319

million

The portfolio primarily serves as collateral for public funds deposits and retail repo/sweep

accounts

The corporate bonds segment (primarily Trust Preferred securities and CDOs) has had significant

downward fair value adjustments

The municipal securities consist of local state issuers (WA, OR and ID)

The

mortgage-backed

securities

and

CMO

securities

are

either

seasoned

premium

coupons

or

senior non-complex structures

Note: Data as of September 30, 2009

Equity securities

0%

Corporate bonds

14%

Tax-exempt

municipal bonds

23%

FNMA

13%

U.S. Agency

obligations

26%

Taxable

municipal bonds

1%

GNMA

6%

FHLMC

15%

Private issuer

MBS

2%

23

Attractive Market Demographics

Our markets demonstrate both strong past and projected growth trends

Five-Year

MSA

Market 

Rank

Branches

Deposits

in Market

($000)

Percent of

Franchise

(%)

Population

Change

2000-2009

(%)

Proj.

Population

Change

(%)

Proj.

HHI Change

(%)

Seattle-Tacoma-Bellevue, WA

14

17

686,653

18.1

12.64

6.04

5.58

Walla Walla, WA

1

6

567,136

15.0

6.98

2.93

6.10

Spokane, WA

6

16

440,592

11.6

11.97

5.52

5.37

Yakima, WA

3

6

312,297

8.3

7.34

3.49

5.84

Pendleton-Hermiston, OR

1

6

277,258

7.3

6.38

1.93

6.65

Portland-Vancouver-Beaverton, OR-WA

15

9

263,281

7.0

15.84

7.31

3.70

Bellingham, WA

5

7

232,748

6.2

18.14

8.40

6.57

Kennewick-Pasco-Richland, WA

4

4

179,497

4.7

26.42

11.79

7.00

Lewiston, ID-WA

2

3

156,492

4.1

4.58

2.33

7.15

Wenatchee-East Wenatchee, WA

4

2

143,374

3.8

11.85

5.63

6.21

Boise City-Nampa, ID

16

5

120,009

3.2

32.63

14.05

4.71

La Grande, OR

4

1

47,628

1.3

2.30

1.24

4.67

Oak Harbor, WA

8

1

46,451

1.2

13.77

5.76

5.64

Twin Falls, ID

9

1

38,122

1.0

16.48

8.16

6.70

Mount Vernon-Anacortes, WA

14

1

34,601

0.9

16.74

7.53

6.85

Banner: Weighted Average by MSA

93.7

12.24

5.53

5.82

Nationwide: Weighted Average by MSA

10.06

4.63

4.06

Counties not in an MSA

Baker, Oregon

3

1

36,428

1.0

(2.02)

(2.16)

4.10

San Juan, Washington

1

3

176,475

4.7

13.53

4.94

1.63

Columbia, Washington

1

1

26,590

0.7

0.71

(0.24)

4.45

Banner: Weighted Average Franchise

6.3

12.08

5.39

5.60

Nationwide: Aggregate

10.06

4.63

4.06

Source: SNL Financial

24

Investment Summary

Strategically-located Pacific Northwest branch network

Solid and growing deposit base

Loan portfolio with diversification in geographic and loan type

Diversified economic drivers across markets

Thorough and conservative approach to credit risk management has

led to flattening credit quality trends

Management team with extensive operating and credit cycle

experience in Pacific Northwest markets

Solid core operating results

Attractive current valuation

25

Appendix A: Reconciliation of Non-GAAP Measures

¹

Assumes gross proceeds of $75mm with underwriters' discount of 5.75% and expenses of $300,000

²

Assumes proceeds risk-weighted at 20%

³

Assumes quarterly intangible amortization of $647 thousand, quarterly pre-tax pre-provision earnings of $10 million and $4.5 million of equity

issued quarterly as part of the DRIP program; earnings will be applied to assets, and capital raised will be applied to liabilities

(Dollars in Thousands)

As of September 30, 2009

Projected September 30, 2011³

Actual

Pro Forma¹

Baseline¹

More Adverse¹

Stockholders’ equity

$406,723

$477,111

$488,961

$332,962

Goodwill

0

0

0

0

Other intangible assets, net

11,718

11,718

8,483

8,483

Tangible equity

395,005

465,393

480,478

324,479

Preferred equity

117,034

117,034

117,034

117,034

Tangible common equity

277,971

348,359

363,444

207,445

Total assets

4,788,008

4,858,396

4,799,858

4,643,859

Goodwill

0

0

0

0

Other intangible assets, net

11,718

11,718

8,483

8,483

Tangible assets

$4,776,290

$4,846,678

$4,791,375

$4,635,376